Brokerages squeeze out jobs

The below reproduced article has appeared in the Economic times (Mumbai edition) on 28th March 2008 - Again this article only confirms what I had predicted in my earlier article titled "Kindly Bear with Me" regarding how this so called new leveraged finance whiz kids risk losing their jobs.... Q.E.D



MUMBAI: The year would have been much better for Naveen Khadilkar (name changed), had he not lost his job months before his marriage. The 26-year-old, who worked as a relationship manager with a Mumbai-headquartered brokerage, walked into office last week only to be told that his services had been terminated.

But Naveen is not the only one who is bearing the brunt of a bear run in the market. If market sources are to be believed, top brokerages have already begun downsizing staff (or stalling new recruitment) to reduce costs in what has been a nightmarish quarter. Following the market crash in late January, most retail brokerages have been hit by a double whammy of bad debts and a sharp drop in daily turnover.

Last year, many brokerages had expanded their branch network, hoping that they could get private equity investors to pay more for a wider presence. But uncertain market conditions are forcing many brokerages to have second thoughts on the need for so many branches and staff. “Underperformance” is cited as the most common reason given for laying off people.

“This is a normal trend and it doesn’t have anything to do with the current market conditions. Employees who have not done well even after giving adequate training and support are asked to leave at all times,” said Indiabulls Securities CEO Divyesh Shah.

Lacklustre market and lack of interest on the part of investors to participate in daily proceedings have put a question mark over earnings for most broking firms. The business model of most broking firms (and also fund houses) is highly correlated to general market conditions. Indian financial services institutions are expected to do better in times of good markets. Pursuant to the fall, brokerages are focusing more on distribution of insurance products to make up for losses in equity broking.

More than specific functionaries like dealers and research analysts, it is relationship managers who are finding the future of their jobs up in the air. A mid-size brokerage could have anywhere between 500 and 1,000 relationship managers in its rolls. The job profile of relationship managers includes marketing and selling of financial products, client servicing, acquiring new clients, garnering more business and advising HNIs on their long-term and short-term investments. Relationship managers are paid in the range of Rs 5-12 lakh depending on their experience and performance. They are bound to stiff and at times impossible-to-achieve targets.

“We set stiff internal targets for our relationship managers, but at the same time, we do not hesitate to revise them (targets) when markets are down,” said India Infoline vice-president (strategy & planning) Harshad Apte. “And as far as laying off underperformers are concerned, we do that even in the time of good market conditions. In fact, the bad market is the best time to test your relationship managers,” Mr Apte added.



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The below reproduced article has appeared in the Economic times (Mumbai edition) on 28th March 2008 - Again this article only confirms what I had predicted in my earlier article titled "Kindly Bear with Me" regarding how this so called new leveraged finance whiz kids risk losing their jobs.... Q.E.D



MUMBAI:
The year would have been much better for Naveen Khadilkar (name changed), had he not lost his job months before his marriage. The 26-year-old, who worked as a relationship manager with a Mumbai-headquartered brokerage, walked into office last week only to be told that his services had been terminated.



But Naveen is not the only one who is bearing the brunt of a bear run in the market. If market sources are to be believed, top brokerages have already begun downsizing staff (or stalling new recruitment) to reduce costs in what has been a nightmarish quarter. Following the market crash in late January, most retail brokerages have been hit by a double whammy of bad debts and a sharp drop in daily turnover.



Last year, many brokerages had expanded their branch network, hoping that they could get private equity investors to pay more for a wider presence. But uncertain market conditions are forcing many brokerages to have second thoughts on the need for so many branches and staff. “Underperformance” is cited as the most common reason given for laying off people.



“This is a normal trend and it doesn’t have anything to do with the current market conditions. Employees who have not done well even after giving adequate training and support are asked to leave at all times,” said Indiabulls Securities CEO Divyesh Shah.

Lacklustre market and lack of interest on the part of investors to participate in daily proceedings have put a question mark over earnings for most broking firms. The business model of most broking firms (and also fund houses) is highly correlated to general market conditions. Indian financial services institutions are expected to do better in times of good markets. Pursuant to the fall, brokerages are focusing more on distribution of insurance products to make up for losses in equity broking.

More than specific functionaries like dealers and research analysts, it is relationship managers who are finding the future of their jobs up in the air. A mid-size brokerage could have anywhere between 500 and 1,000 relationship managers in its rolls. The job profile of relationship managers includes marketing and selling of financial products, client servicing, acquiring new clients, garnering more business and advising HNIs on their long-term and short-term investments.

Relationship managers are paid in the range of Rs 5-12 lakh depending on their experience and performance. They are bound to stiff and at times impossible-to-achieve targets.

“We set stiff internal targets for our relationship managers, but at the same time, we do not hesitate to revise them (targets) when markets are down,” said India Infoline vice-president (strategy & planning) Harshad Apte. “And as far as laying off underperformers are concerned, we do that even in the time of good market conditions. In fact, the bad market is the best time to test your relationship managers,” Mr Apte added.



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Meghnad Desai's view of risk and risk takers

Six
months ago when the first signs of the financial crisis appeared many were taken
by surprise. It was predictable in principle that after years of cheap liquidity
and a lot of new risk vehicles in which people were investing, sooner or later
something would give way.



The
difficulty with economics is that while one can predict an event is likely to
happen given the various related phenomena, one cannot forecast the date and
time when it will happen. Economists are not astrologers; they aspire to be more
like astronomers. They observe remote movements in markets and map their
dynamics. It is an imperfect science, yet it has some lessons to
teach.



Also at that time last
summer, many were saying that somehow the emerging economies - especially China
and India - had decoupled themselves from the developed country markets and so
India would be spared the worst of the crisis. We know better now. Financial
markets, much more so than real economies, are interlinked by fast flowing funds
which can come and go. This is not worrying because these flows move Sensex and
other indices up and down, but the speed and volatility by themselves insulate
the real economy against these fluctuations. Of course, this assumes that
monetary policy is sound and financial regulation
works.



The financial economy is
global and fast moving; the real economies are integrated only through traded
goods and services which leave a lot of the economy in each country to
experience such shocks with some delay. The 1973 oil price rise was different
because it was a direct shock to the real economy and not via financial markets.
What we have seen is that while there has been turmoil in financial markets it
has had little impact on the real
side.



Those who buy and sell in
the stock markets should know that volatility is the name of the game; indeed
great stock market players like George Soros make their fortunes by being one
step ahead of volatility. If you make losses by the same token that is your
problem. There is no need to rescue rich losers on the stock markets. What we
are seeing on Wall Street now is that when large losses are made somehow the
believers in free markets rush to the government for help. Thus they are
socialists when they make losses and free market fundamentalists in good
times.



The rescue of Bear
Stearns by the Federal Reserve was a prime example of this whereby J P Morgan
got the assets at a throwaway price (even after the recent upping of the bid
from $2 to $10 a share). The Fed has taken a possible loss of up to $25 to $30
billion while J P Morgan only loses at most $5 to $6 billion but then will
profit from its acquisition. This under a government which believes in free
markets! Ben Bernanke has devised a generous injection of liquidity which will
come back to haunt the American
economy.



The Bank of England is
more independent compared to the Fed. Mervyn King, the bank governor, has taken
the correct view that if banks make foolish deals they should pay for any help
he can give them to get them out of trouble. He has been much criticised since
the powerful lobby of the rich players in financial markets and their apologists
in the media and parliament are howling with rage that the bank is not doling
out cheap money.



Northern Rock
was a smaller mortgage lender than Bear Stearns, which was an investment bank,
and when it was in trouble the first step was to assure the depositors that
their money was safe. But after that, instead of giving it to a private firm to
profit from this rescue, the government took Northern Rock over. When it has
paid


off its support loan of
£25 billion it will be denationalised. In the meantime, the shareholders
are likely to get what their shares were truly worth when the firm was rescued,
i.e. zero.



I wish governments
enforced market logic more rigorously rather than helping out risk takers. A lot
of these hedge funds or banks have made money by borrowing a large multiple of
what their paid-up capital is. In the case of Carlyle Corporation, this was up
to 30 times. Leveraging, as this is called, is financed by short-term loans.
While the investments keep going up, the company is happy as are its lenders.




But then suddenly even triple
A securities issued by the US government-backed housing finance companies, Fanny
Mae and Freddy Mack, found that their shares declined massively. Firms, which
had borrowed 30 times, found their value collapsing and their lenders demanding
money on the dot. So a multi-billion company like Carlyle went bust.




Sensex has had its gyrations,
going down to below 15,000 and now struggling back up. This is as it should be.
Stock markets are for grown-ups. As President Truman said in the context of
politics, one can say about stock markets: "If you can't stand the heat, get out
of the kitchen". In any case one hopes the government does not give any help to
the losers. It is one thing to help farmers who are in debt, but another to help
financiers who thrive on debt. Let them pay the
price.



The above article has been written by Meghnad Desai - The writer is a member
of the British House of Lords and it only affirms what I have written in my earlier article "Kindly Bear with me"!!!!!

Hey guys,
have a look at the video - It is a parody of the popular Police number - "Every Breath you take" and takes a dig on the financial markets

lovely video --- an absolute must watch


http://hk.youtube.com/watch?v=3u2qRXb4xCU

Kindly "BEAR" with me......

JAO MAT DOST ..... SHOW ABHI BAAKI HAI!!!!!!

All you so called new gurus of the stock markets ......Welcome to the grim realities of the stock market!!!. The stock market has taken its 2nd bigger ever hit sliding over 951 points on Monday, 17th March 2008.The major falls of sensex have been -

21-1-2008: 1408 pts
17-3-2008: 951 pts
3-3-2008: 900 pts
22-1-2008: 875 pts
11-2-2008: 834 pts
18-5-2006: 826 pts
13-3-2008: 771 pts
18-10-2007: 717 pts
18-1-2008: 687 pts

The sensex recorded its peak on January 8, 2008 touching 20873. On 17th March i.e 3 months later the sensex is at 14800 levels ie a fall of 29% (6073 pts).Oil prices have crossed the $100 barrier. Gold has shot past Rs.12000 giving a clear indication of the tough times ahead. I, for one, am not at all complaining about the scenario - for this was something that was waiting to happen - anyone who did not anticipate this was clearly blind as a bat and stupid as an owl.

But what pisses me off is the so called "stock market pundits" turning a blind eye towards the pressure build up and thereby failing to issue the clarion call to the investors. What were the so called tie toting smug looking research analysts (who were in anycase being paid many times over their real intellectual worth) doing all these while? It is only after the meltdown happens that these stupid dilbert like characters come out and say that the scenario looks bleak --- shuttttt up... now even my 10 year old son can say that the situtation is grim - I dont need a overpaid, Mr.know it all to tell me that on CNBC.

Some of the so called big shots (or people in the know as I prefer to call them) have issued statement which go as under (the quotes have appeared in ET on 18th March 2008- just for the records)(the words in italics are my comments and not theirs!!!:-
Mr. R. Venkataraman (ED - India infoline) says "It will take some time for the sentiment to change (ha ha as if this is something new). There is a need for large institutions like LIC to start buying frontliners to provide a filip to sentiment (Why Mr Venkataraman? LIC ne market ka theka le rakha hai kya? When you were filling your pockets during the boom time did you pass on some of your positions to LIC telling them to keep the profits - Why should they come to the rescue of the market - so that to ensure that you make a profit ? SORRRRRRY SIR - that is not what LIC is there for).

Mr. Motilal Oswal (CMD Motilal Oswal Securities) (This one takes the cake) - This is time to accumulate good quality stocks from medium to long term perspective. They can go for old economy stocks like GSK, Bharti etc (In my humble opinion old economy stocks meant TISCO, ACC etc since when has Bharti become a old economy stock).... and Now comes the punch line - read this - " Markets have overreacted to global events.But that does not mean that they cannot go further. Now I am confused - should I buy old economy stocks or should I wait for them to go down.

I mean you dont need to be a genius to tell someone that the markets may either go up or it may go down... DUHHHH.. what kind of a view is that -- even my ghar ka kaamwaali bai can tell that --- gimme a break Mr. Oswal.This only proves that no one ... I repeat no one has any clue about which direction the market is going to take - If that is the case then may I call upon CNBC to please invite my kaamvali bai and ask her to give an opinion on the markets - my apologies to the viewers that she wont sport a tie nor will she speak in broken english and she wont refer to complex charts - in any case to tell that a stock market will either go up or down you dont need any of these.

Mr. Venkataraman's call to LIC seems totally devoid of any logic - why doesnt he call upon the Pvt Sector Mutual funds to start buying (if he sees value in today's stock prices?) - these guys wont because they are worried about their annual fat bonuses getting hit - it is the bechara LIC fund manager who is any way not entitled to the hefty bonuses that is being called upon so that the market can be revived and the private sector fund managers can look forward to a vacation in Seychelles out of their hard earned Bonus ...(Sic) . Talking about the private sector brings me to another interesting development - The Bear Sterns Collapse ---So much for the young investment turks who give an appearance that they started wearing ties even before their momma taught them how to tie diapers....armed with a degree from one of the management institutes these Mr. Know it all think that the only way the market can go is up - and start designing fancy instruments and have no inkling about the risks associated with them . Having seen two scams and over 17 years in the capital market my only word to them - "Kiddos.......welcome to world of MEN"

Now we will see the other repurcussions happening on the employment front in the financial sectors - the brokerages and investment houses will soon implement pay slashes which will result in a myriad of problems to these financial sector kiddos who have anyway leveraged their present earnings many times over to buy plush houses and fancy cars.. now we will see pink slips being issued in a lot of broking houses who will start cutting down costs if there is a further market slide.

It is also rumored that DBS of singapore has instructed its traders to limit its exposure to Lehman Bros. So the goldman sachs, JPs of the world be careful.... you might not be god's gift to mankind after all .

I wonder why none of these pundits actually gave a sell call when these signals started originating - I mean we all knew US was entering into a recession, we all knew that oil prices was spiralling up fuelling inflation, we all knew gold prices was shooting up giving a clear indication that global investors were jittery against currencies especially dollars, we all knew that dollar was getting hit against all major currencies especially Yen... hey wait a minute - I have been saying we all knew - am I missing something out here - dont these pundits read newspapers or do they read some other news paper I am not aware of....Till last week I was receiving research reports from some big brokerage houses recommending a value buy based on FUNDAMENTALS. I am tempted to quote a oft repeated joke in the market circles " FUNDAMENTALS pe mat jaana - pehle FUND jaayega phir tum MENTAL ho jaaoge" !!!!!!

What we lack in this market are people who are willing to stick out their neck and say with conviction which way the market will go - if they cant take a view then let them have conviction to tell that they are clue less rather than pretending to be the nose in the air know it all gurus.

My view - the market is going to be in a bear grip for atleast 6 months - and my reasons - US recession, failure to control oil prices might triger global inflation, slow down in new projects due to bearish sentiments in the financial sector...Interest rates definitely looking to go up in the near term and with March around the corner lot of banks will have to book losses on mark to market procedures on their investments - so they might be loathe to taking fresh buying - If I am proven wrong then so be it - I will be a happy person because my portfolio value would increase and If i am proven right - I can always proclaim "I said so"!!!! . So it is heads I win tails you lose........

55 Amendments that go against the court rulings

In Budget 2008 there are 55 amendments to the Income-Tax Act, 1961. Amendments to statutory provisions are made because of (i) changes in the economy, (ii) to plug the existing loopholes, and (iii) to provide a fillip to priority areas.

While a push given to certain sectors of the economy by means of incentives and tax holidays is generally welcomed by taxpayers, changes made to plug the loopholes in the provisions are normally not. In addition to the aforementioned reasons, amendments are made to unsettle court decisions which favour the taxpayers.

The following are some of the amendments which have approved or negatived some of the current court decisions.

Agricultural income

Income from saplings or seedlings grown in a nursery was held as agricultural income in the CIT vs Soundarya Nursery (2000 241 ITR 530 Madras) case. A contra decision can be found in H. H. Maharaja Vibhuti Narain Singh vs State of UP (1967 65 ITR 364 Allahabad).

The Finance Bill, 2008 has proposed to confirm the decision rendered in the Soundarya Nursery case by deeming such nursery income as agricultural income. Because of the amendment, even where basic operations are not carried out on land, such income will be deemed as agricultural income, eligible for exemption.

Charitable purpose

Any activity in relation to trade, commerce or business for a cess or fee is not tax-free from the assessment year 2009-10. This amendment nullifies the Supreme Court decision in the CIT vs Gujarat Maritime Board (2007 295 ITR 561 SC) case.

In this case, the Maritime Board was meant for the development and maintenance of minor ports in Gujarat. The application for registration was rejected and it was held that the assessee’s predominant purpose was to develop minor ports in the Gujarat and, hence, is eligible for registration under Section 12A. Now this decision stands nullified because of the amendment.

Business expenditure

Expenditure paid otherwise than by account-payee crossed cheque or account-payee crossed bank draft in excess of Rs 20,000 is not allowable. Taxpayers generally resort to more than one payment with each being within the monetary limit and, thereby, avoid disallowance. More than one payment in a single day was accepted by the courts (CIT vs Aloo Supply Company — 1980 121 ITR 680 Orissa) as not violative of Section 40A(3).

Now the amendment says that if the aggregate payment to a person in a day exceeds Rs 20,000 otherwise than by the prescribed mode, it is to be disallowed.

Book Profit

Deferred tax liability debited to profit and loss (P&L) account was not to be added to the net profit while computing the book profit under Section 115 JB (Shree Umaid Mills Ltd vs CIT — 2007 17 SOT 72 JP; CIT vs Balarampur Chini Mills Ltd — 2007 14 SOT 372 Kolkata).

The Finance Bill, 2008 provides for retrospective amendment for adding the amount of deferred tax provision debited to P&L account and thereby nullifies the tribunal decisions.

Deemed satisfaction

While completing the assessment, the assessing officer (AO) must record his satisfaction about the concealment for levy of penalty. The amendment now says that it is sufficient if the order contains a direction for initiation of penal proceedings. Such remark in the assessment order shall be deemed as the AO being satisfied about the need for initiating penalty proceedings.

This amendment nullifies the decision in the CIT vs Ram Commercial Enterprises Ltd (2000 246 ITR 568 Delhi) case.

Reasons for reassessment

For issue of notice under Section 148, sanction must be obtained from the Joint Commissioner. In Dr Shashi Kant Garg vs CIT (285 ITR 158 Allahabad), it was held that the Joint Commissioner must issue the notice. Now the amendment proposed by inserting Explanation to Section 151(2) says that it is enough if the AO has recorded the reasons and the Joint Commissioner or the Commissioner is satisfied about the fitness of the case. The amendment, retrospectively applicable, nullifies the court decision.

Reassessment of pending appeal

Where the assessment is completed and pending before the appellate authorities, the AO cannot initiate reassessment proceedings even in respect of other matters. Now a proviso to Section 147 is proposed to be inserted to allow reassessment of the matters other than those which are in appeal, reference or revision.

In CIT vs Sakseria Cotton Mills Ltd (124 ITR 570), it was held that only the points on which the appeal is made would merge with appellate order and in respect of other matters the limitation would start from the date of original order.

In effect, reassessment in respect of uncontested issues might get time barred if the proceedings are initiated after the disposal by the appellate authority. To overcome this difficulty, the Finance Bill, 2008 proposes to empower the AO to reassess the income in respect of matters other than those which are subject to appeal.

Monetary limit for appeal

In Berger Paints India Ltd vs CIT (Civil Appeal Nos.1081 to 1083 of 2004) it was held by the apex court that in one case if the appeal is not made, on the very same issue in the case of any other assessee an appeal cannot be made. To nullify the decision a new Section 268 A is proposed to be inserted, whereby an appeal not filed for an assessment year is no bar for preferring an appeal in another assessment year or in any other case.

The aforementioned decisions are ones that have been nullified by the Finance Bill, 2008. Every year it has become routine to find some of the court decisions favouring the assessee being upset by the amendments, sometimes retrospectively and where it could not be backed by reasons, by means of deeming provisions.

55 Amendments that go against the court rulings

In Budget 2008 there are 55 amendments to the Income-Tax Act, 1961. Amendments to statutory provisions are made because of (i) changes in the economy, (ii) to plug the existing loopholes, and (iii) to provide a fillip to priority areas.

While a push given to certain sectors of the economy by means of incentives and tax holidays is generally welcomed by taxpayers, changes made to plug the loopholes in the provisions are normally not. In addition to the aforementioned reasons, amendments are made to unsettle court decisions which favour the taxpayers.

The following are some of the amendments which have approved or negatived some of the current court decisions.

Agricultural income

Income from saplings or seedlings grown in a nursery was held as agricultural income in the CIT vs Soundarya Nursery (2000 241 ITR 530 Madras) case. A contra decision can be found in H. H. Maharaja Vibhuti Narain Singh vs State of UP (1967 65 ITR 364 Allahabad).

The Finance Bill, 2008 has proposed to confirm the decision rendered in the Soundarya Nursery case by deeming such nursery income as agricultural income. Because of the amendment, even where basic operations are not carried out on land, such income will be deemed as agricultural income, eligible for exemption.

Charitable purpose

Any activity in relation to trade, commerce or business for a cess or fee is not tax-free from the assessment year 2009-10. This amendment nullifies the Supreme Court decision in the CIT vs Gujarat Maritime Board (2007 295 ITR 561 SC) case.

In this case, the Maritime Board was meant for the development and maintenance of minor ports in Gujarat. The application for registration was rejected and it was held that the assessee’s predominant purpose was to develop minor ports in the Gujarat and, hence, is eligible for registration under Section 12A. Now this decision stands nullified because of the amendment.

Business expenditure

Expenditure paid otherwise than by account-payee crossed cheque or account-payee crossed bank draft in excess of Rs 20,000 is not allowable. Taxpayers generally resort to more than one payment with each being within the monetary limit and, thereby, avoid disallowance. More than one payment in a single day was accepted by the courts (CIT vs Aloo Supply Company — 1980 121 ITR 680 Orissa) as not violative of Section 40A(3).

Now the amendment says that if the aggregate payment to a person in a day exceeds Rs 20,000 otherwise than by the prescribed mode, it is to be disallowed.

Book Profit

Deferred tax liability debited to profit and loss (P&L) account was not to be added to the net profit while computing the book profit under Section 115 JB (Shree Umaid Mills Ltd vs CIT — 2007 17 SOT 72 JP; CIT vs Balarampur Chini Mills Ltd — 2007 14 SOT 372 Kolkata).

The Finance Bill, 2008 provides for retrospective amendment for adding the amount of deferred tax provision debited to P&L account and thereby nullifies the tribunal decisions.

Deemed satisfaction

While completing the assessment, the assessing officer (AO) must record his satisfaction about the concealment for levy of penalty. The amendment now says that it is sufficient if the order contains a direction for initiation of penal proceedings. Such remark in the assessment order shall be deemed as the AO being satisfied about the need for initiating penalty proceedings.

This amendment nullifies the decision in the CIT vs Ram Commercial Enterprises Ltd (2000 246 ITR 568 Delhi) case.

Reasons for reassessment

For issue of notice under Section 148, sanction must be obtained from the Joint Commissioner. In Dr Shashi Kant Garg vs CIT (285 ITR 158 Allahabad), it was held that the Joint Commissioner must issue the notice. Now the amendment proposed by inserting Explanation to Section 151(2) says that it is enough if the AO has recorded the reasons and the Joint Commissioner or the Commissioner is satisfied about the fitness of the case. The amendment, retrospectively applicable, nullifies the court decision.

Reassessment of pending appeal

Where the assessment is completed and pending before the appellate authorities, the AO cannot initiate reassessment proceedings even in respect of other matters. Now a proviso to Section 147 is proposed to be inserted to allow reassessment of the matters other than those which are in appeal, reference or revision.

In CIT vs Sakseria Cotton Mills Ltd (124 ITR 570), it was held that only the points on which the appeal is made would merge with appellate order and in respect of other matters the limitation would start from the date of original order.

In effect, reassessment in respect of uncontested issues might get time barred if the proceedings are initiated after the disposal by the appellate authority. To overcome this difficulty, the Finance Bill, 2008 proposes to empower the AO to reassess the income in respect of matters other than those which are subject to appeal.

Monetary limit for appeal

In Berger Paints India Ltd vs CIT (Civil Appeal Nos.1081 to 1083 of 2004) it was held by the apex court that in one case if the appeal is not made, on the very same issue in the case of any other assessee an appeal cannot be made. To nullify the decision a new Section 268 A is proposed to be inserted, whereby an appeal not filed for an assessment year is no bar for preferring an appeal in another assessment year or in any other case.

The aforementioned decisions are ones that have been nullified by the Finance Bill, 2008. Every year it has become routine to find some of the court decisions favouring the assessee being upset by the amendments, sometimes retrospectively and where it could not be backed by reasons, by means of deeming provisions.